Objective, impartial advice for Property Investors and Landlords with a focus on the Edinburgh area

Tuesday, 12 September 2017

Edinburgh – The 20 year Time Bomb on Home Ownership

Many people think the British obsession with owning your
own home started with Thatcher in the early 1980’s, when she allowed council
tenants to buy their council houses under the right to buy scheme. However, the
growth actually started just after the Second World War. Looking at the country
as a whole in 1951 30% of residential property was owner occupied then, every
ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and
68.1% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop
today.

Young adults tend to start to think about settling down
and moving out of the family home in their early-mid twenties. After a
couple of years, they will have a choice of either buying their first house
(albeit with a mortgage) or decide to privately rent for the long term (because
the Council House waiting list is measured in decades at the moment!). The
ratio of people owning a house with a mortgage verses privately renting is an
extremely important guide to what people are doing about their housing needs
and what their attitude to renting vs buying is. With that in mind,
within the next 20 years, I am predicting there will be more people renting
privately in Edinburgh than own a property with a mortgage and that the British
love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as
I explained to a local Edinburgh landlord the other day, knowing when and where
the demand of tenants is going to come from in the coming decade is just as
important as knowing the supply side of the buy to let equation, in relation to
the number of properties built in the town; Edinburgh property prices and Edinburgh
rents.

In the Edinburgh area as a whole there are 48,822
households that are privately rented via a landlord or letting agency verses 64,747
households that are owned with a mortgage, so my prediction appears to be
outrageous. However, when we look deeper (as the devil is always in the
detail), 30,431 or 47% of those 64,747 households are 35 to 49 year olds and 20,719
or 32% are households of 50 to 64 year olds. I would expect all the 50+ years
to be paying their mortgage off as they enter retirement as I would with some
of the people in their mid/late 40’s.

Meanwhile, at the other end, in the 25 to 34 age range
(the age most people bought their first home in the 1970’s/80’s/90’s) only 12,646
or 36% of the 35,127 households occupied by those 25 to 34 year olds are owner
occupiers with mortgages, because of the higher number of properties that are
now being rented. This means 36% of 25 to 34 year olds have bought their house
(with a mortgage). Twenty years ago, that would have a much higher percentage
of homeowners (nearer 60%).

It can be seen that as the older generation pay their
mortgages off as they start to get to retirement and the younger generation
aren’t jumping on the property ladder like they were 20 or 30 years ago, the
private rental sector will take up the slack as more and more people will want
a roof over their head, but won’t buy one but rent one instead. With Local
Authorities and Housing Associations not building houses anywhere near like the
number of houses they were building in the 1950’s, 60’ and 70’s, the private
landlord appears to have good demand for their rental properties for many
decades to come.

This will create a polarisation in the housing market
between those, mostly older, households who own outright and those, mostly
younger, households who rent. Our housing market is very much turning into the
European model. However, all is not lost; the younger generation will inherit
their parents properties, which in turn will enable them to buy, albeit later
in life.

If you are a landlord or thinking of become a landlord,
why not pop in and see us at our office at 6 Bank Street.

About This Blog

This blog follows the buy to let market in Edinburgh. You'll find tips, guidance, and analysis that relates specifically to Edinburgh and you'll also find properties from all the estate agents in the city on here that may make decent investments.

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Robert Young

I operate The Key Place and if you're thinking of buying a property to let in Edinburgh, I'll be happy to advise or just offer a second opinion. I can be contacted on news@thekeyplace.co.uk, or 0131 603 4570.